Pension Option on Redundancy

philng

My wife has 2 parts to her existing Money Purchase Pension sceme.
She is due to finish from work shortly on Voluntary Redundancy and was looking at transferring her Money Purchase value to a SIPP so she could stagger withdrawals to avoid tax over the next 8 years prior to receiving another final salary pension at age 65. BUT
She has only been provided with a value on 1 part of her scheme-The other part it states 'we regret to advise that the current value of the core Retirement Account of £29836 is insuffcient to cover the cost of purchasing the minimum scheme pension of £845 p.a.. Therefore it is not possible for you to take early retirement at this time. (Normal retirement date is 31/07/19).
As my wife has no intention of taking an annuity from this part of her pension a) would there be any restriction on transferring the value to a SIPP? b) Are there any significant advantages in leaving it where it is until NRD in 3 years time?

jamesd

It's referring to the Guaranteed Minimum Pension. It appears that will pay out only 2.83% of the current pot value, though it'll be linked to CPI inflation. That's probably a better deal than a comparable open market annuity but of course it's a worse deal than say using the money to defer her state pension and barring very bad long term investment performance, wore than investment-based drawdown can be expected to pay.

There's no advantage to leaving it where it is unless she would otherwise want to buy a comparable annuity instead. If she would want to do that, it'll probably offer a better deal than the open market.

She may be barred by the provider from transferring. If the value of the projected income after taking a 25% tax free lump sum is greater than £30,000 they are required by law to obtain evidence that independent financial advice has been obtained before allowing a transfer out. She is not required to follow that advice, just get it. Given her purpose it's probably sensible for her to take it, since her actual need is presumably higher than sustainable income from the realisable pots to maintain consistent income from retirement until the DB pension starts. An IFA might recognise this.

Ask them to provide the value after taking 25% tax free lump sum to determine whether it is then more than £30,000 or not. There is no requirement for taking advice before taking the 25%. While not required, it would be useful to tell them that the reason she wants to move it is to draw rapidly to provide smoothed income until a larger DB pension starts at age 65. This may shift their perception of her and help with customer service even though it can't change the answer they have to give.

The cost of advice could well exceed £1,000 but the price is not fixed so shopping around can be helpful. It would probably be useful to give a quick summary of her future income and plan to draw rapidly to provide more even income flow to help any IFA to know that is not one of the many "I want to get and recklessly spend all of the money now" enquiries that they will be getting but is rather just sensible financial planning for smoothed overall income and tax efficiency.

Waiting until NRA will not remove the advice requirement. Waiting until any guaranteed income offer expires would but I doubt that there is an end date for this particular GMP case as there quite often is with guaranteed annuity rates.

philng

Thank you JamesD.

Does this mean they can stop us transferring the value to our own SIPP to drawdown without paying for IFA advice that I don't need?

OldBeanz

If the value is over £30k then they can insist on you seeking advice.

Any IFA would be concerned about being sued if giving the perceived wrong advice so you need to build the case you are making further by filling in the numbers. By doing so the IFA should be able to build a case showing it would be to your advantage to take the money.

If you do not do the homework then the IFA will charge you more for doing the work and more again for dealing with a perceived higher risk.

Read jamesd's post again as I am re-iterating what he is saying - by doing the work for the IFA you can cut the charges. By letting the pension people understand your plans they may help as well.

My wife did something similar with an £8k DB pot and the pension providers were very sceptical until I (although there was no requirement) wrote and explained she wanted the money to help fund a 7 year gap before another DB pension kicked in.

philng

but this a Defined Contribution scheme & not a defined benefit scheme.

according to the latest value it is worth just under £30000. I had understood the new pension rules would allow us to do what we want with it.

jamesd

philng wrote: »

Does this mean they can stop us transferring the value to our own SIPP to drawdown without paying for IFA advice that I don't need?

They will be breaking the law if they allow it without you either taking advice or getting the value of the future income below £30k. They aren't going to break the law.

I'm not actually sure that they are able to let you take a 25% tax free lump sum when the GMP requirement can't be met but that is the way that offers the greatest chance of doing it without paying for advice.

The relevant value isn't the value of the pot. It's the value of the GMP income. Such values for pensions are normally done via the cash equivalent transfer value method. That the GMP is worth little to her because the money is not provided when she needs it means nothing at all.

It's defined contribution but defined contributions are subject to the rules covering income guarantees and this includes the GMP that applies here as well as guaranteed annuity rates. If you want to blame anyone the correct people to blame are the members of the Work and Pensions Committee of the House of Commons, who asked for and got this bit of law that started only in April 2015 as a change to the government proposals.

While it's nice to have the IFA advise that you should transfer, what the IFA says doesn't matter because you're free to disregard the advice. The law requires you to take it and show that you've taken it, not follow the advice given. Some provides won't take a transfer if it is contrary to the advice but plenty will.

hyubh

philng wrote: »

but this a Defined Contribution scheme & not a defined benefit scheme. according to the latest value it is worth just under £30000. I had understood the new pension rules would allow us to do what we want with it.

It sounds like a money purchase arrangement with a DB underpin, in which case the value of the underpin must surely be north of just under 30K, otherwise it wouldn't have bitten. While I wouldn't immediately infer that this underpin is specifically for GMP (is it?),
whether it is or isn't doesn't change the fact it gets you into needing independent financial advice under the 'freedom and choice' legislation.

xylophone

Is it wholly DC? It doesn't sound like it?

Is it some kind of hybrid whereby the company contributes to the core retirement plan (so a DB type arrangement) while the employee contributes to the non core plan (a kind of AVC arrangement)?

Does the CRP have to provide a Guaranteed Minimum Pension at age 60?

jamesd

It's almost certainly wholly DC but with a former former protected rights part that has GMP attached, as was required by law before 1997. Then the requirement to buy a GMP qualifying annuity was removed in 2012 but from 6 April 2015 the Work and pensions Committee added back restrictions due to the GMP. So we have the hybrid situation of a defined benefit pension with a pot value and a CETV that is higher and blocking transfers but not available for use for transfers as a CETV would be for a defined benefit pension.

philng

Thanks for all your informed replies.
I have e mailed equiniti to confirm all options available and will update when reply received.

philng

I have now received response.

The fund value is £37993 (of which £29836 core contributions which impact possibility of early retirement) and it states the scheme is 'not deemed to be a pure DC benefits scheme as it contains a defined benefit underpin'.

'If you wish to access the funds early you may consider transferring to another registered pension arrangement which would allow you to cash your retiurement account. Pleasae advise if you wish to proceed with transfer and we will issue a transfer out quotation & discharge forms'.

There is no mention of needing to take financial advice so does this mean we would be able to switch the fund to a SIPP without IFA advice?